Monday, May 31, 2010

Day Dreaming won’t Solve Energy Crisis

Ratna Sansar Shrestha

It's not necessary to be an expert to feel the impact of load shedding problem the people in Nepal are facing. As recently as last April, students appearing in SLC examination had to face this obnoxious problem; which hampered in their preparation for the said examination. Actually no sector of the economy, including the educational system, is immune from it. Hospitals and nursing homes are other sensitive areas affected by this crisis.

We can analyze the root cause of this problem on the basis of past plan performances. The 9th five year plan, ending in 2002, was really successful from the perspective of hydropower development. Against a target of adding 293 MW installed capacity in the system, during the plan period, 268 MW was added. However, 10th plan was a complete failure. Just 40 MW installed capacity was added against a target of 314 MW during this period.

One of the reasons behind underperformance during the tenth plan period is the withdrawal of income tax holiday. Under Electricity Act 1992, no income tax had to be paid during first 15 years of operation of the hydropower plant and it would have to pay 10% less than corporate tax from 16 years onward. But the Income Tax Act, 2001 eliminated this facility and investors lost confidence in the government policy sensing lack of stability in it; evidenced by the lackadaisical performance following this; till this date.

Another reason behind the plan failure is below par performance of Nepal Electricity Authority (NEA). In the tenth plan, NEA targeted to add 100 MW installed capacity (70 MW Middle Marsyangdhi and 30 MW Chameliya hydropower projects) in the system. But Middle Marsyangdhi project which was expected to be commissioned by 2004, was commissioned only in 2008 – entailing a time overrun of four years. It is unsure when will Chamelia be commissioned. Besides, Middle Marsyangdhi also suffered cost overrun of a huge magnitude. Estimated to cost just Rs 13.65 billion, by the time of commissioning the contractors had already been paid over Rs 26 billion and they were still demanding payment of additional Rs 10 billion. The project had to bear additional Rs 5 billion in interest during construction for the delay in completion by 4 years and the revenue loss for the period amounted to Rs 9.4 billion. Thus the total cost of this project at completion is Rs 51 billion; the amount adequate to build 500 MW.

‘People’s War’ was another reason behind failure to attract investment in hydropower sector due to lack of investment friendly environment. Besides, the attention of government of Nepal also shifted from solving energy crisis in Nepal to mitigating load shedding problem in India; manifest in government fast tracking projects like West Seti, Arun III, Upper Karnali etc.; all export oriented projects. The hydrocrats failed to understand that solving load shedding problem in India does not solve the same crisis in Nepal; when there is a dearth of projects for internal consumption.

It’s not a case of powers-to-be being caught unawares, as necessary information on how much power will be required in which year till next 15 years is available. NEA has prepared projected load forecast through till 2025. With necessary information about demand side on hand, the powers-to-be had plenty of time to prepare and be ready. But they have been caught with their pants down. Now the country is witnessing high sounding discussions about the alternatives energy sources to mitigate the problem. Unfortunately, it is not practicable to move the country towards industrialization with alternative sources of energy. The solar, bio gas and wind energy are just useful for the household consumptions. Solar and bio energy is not capable enough even to operate a high capacity motor pump for irrigation. The impact of electricity crisis upon the productivity of the nation is severe. It is hard to run the industry today due to load shedding. Migration of semi and non skilled Nepalese labors to foreign countries especially gulf is increasing and, unfortunately, our daughters are facing sexual exploitation in gulf countries. These are the socio economic impacts of load shedding.

Splitting of the ministry of Water resources into energy and irrigation ministry is unfortunate. The energy ministry is not aware of consumption of other major energy sources of energy like petroleum products, liquefied petroleum gases etc. Nepal spent 56 billion rupees in the last fiscal year to import the petroleum products whereas the value of electricity sold by NEA during the same period amounted to 16 billion rupees only. Easily half of this outlay on import of petroleum product can be curtailed by electrifying transportation; electrical railways, trolley buses, ropeways, cable cars, electric vehicles may be the alternatives for the transportation which could also reduce the loss of Nepal Oil Corporation (NOC).

Besides, by introducing and increasing the use of electric train service, the transportation cost can be reduced as the energy cost energy cost of carrying one ton of freight a distance of one kilometer averages 337 kJ for water, 221 kJ for rail, 2,000 kJ for trucks[1].

These days, minister for energy is going about declaring that the load shedding problem will be solved in the next five years but the technocrats working under him have been contradicting him covertly because they know that he is daydreaming. I would like to challenge him that even if the ongoing projects in his list were to be completed in next five years it wouldn’t be sufficient to address the demand of that time. There is big hole in the calculation of the policy makers because they are estimating that we will have cumulative total of 1800 MW installed hydro electricity capacity in next five years and demand will be just 1271 MW. However, what they are forgetting is that 1800 MW will generate less than 900 MW which will not be able to meet the projected (suppressed) demand of 1271 MW. We can draw a parallel with the situation obtaining now. We have approximately 700 MW installed capacity in the system which generate only about 300 MW in the dry season and, hence, the energy crisis. In order to meet the projected demand of 1271 MW in 2013-14, it is necessary to have 2800 MW installed capacity. So the policymakers’ are day dreaming as to how to resolve the power crisis and it is not possible to solve the problem like this.

Published in Vol. 1, Issue 1 (April-May 2010) of Artha Vyavastha (The Economic System) based on an interview with the author.


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